NC Supreme Court Affirms Certification of 800,000 Member Class (Fisher Part 2)

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As we explained in Part 1 of our analysis of Fisher v. Flue-Cured Tobacco Cooperative Stabilization Corporation, the North Carolina Supreme Court recently exercised jurisdiction over an interlocutory appeal and affirmed the certification of a class of hundreds of thousands of current and former tobacco farmers. In the first part, we discussed the Court’s jurisdictional analysis and North Carolina’s unique approach to interlocutory appeals of class certification orders. In this post, we discuss the Court’s substantive analysis of the class certification issues.

The Cooperative’s first challenge to class certification involved the argument that plaintiffs’ claims were derivative. The Cooperative argued that, like a North Carolina corporation, it was entitled to receive a written demand from members to take suitable action before filing suit. The Court declined to decide this question, holding that the derivative demand requirement in section 55-7-42 of the General Statues did not address class certification. The Court also noted that Rule 23 and the Court’s precedent did not require the trial court to consider whether class claims are derivative. The Court explicitly stated that it “express[ed] no opinion” on the derivative issues and noted that the Cooperative could make this argument via a motion to dismiss. Under the Court’s analysis, derivative and class certification issues are distinct, at least under the somewhat unique circumstances of this case.

The Court then turned to the core Rule 23 issues of commonality and manageability. Citing Crow v. Citicorp Acceptance Co., 319 N.C. 274 (1987), which apparently retains its status as one of the leading North Carolina decisions on Rule 23, the Court noted the requirement that there be no conflict of interest between the class representative and the unnamed class members. The Cooperative had argued that one of the named Plaintiffs was a member of the Cooperative’s board of directors, a conflict of interest that should have precluded class certification. The Court disagreed, noting that the plaintiffs had not alleged that individual members of the board had engaged in misconduct, and that none of the directors was named as an individual defendant. Accordingly, the Court held, the trial court did not abuse its discretion in certifying the class.

Interestingly, the Court implies that it would have affirmed the trial court had it reached the opposite conclusion:

Although a trial court might review a class representative’s other activities and find that these activities create a conflict of interest with class members, here the trial court exercised its discretion and determined that Renegar is capable of representing the interests of class members.

The fact that a hypothetical trial court might have found that this conflict of interest prevented certification serves as an important reminder of the demanding standard of review for class certification decisions. This statement also illustrates how opinions like Fisher have important limitations as precedent at the trial level. Litigants in future cases won’t be able to cite Fisher as stating a general rule that directors can serve as class representatives in a case challenging decisions in which they participated. Rather, future plaintiffs will only be able to say that, under the circumstances of this case, it was not an abuse of discretion to certify a class despite the fact that a director was named as a class representative. Of course, their opponents would be equally justified in noting, based on the language quoted above, that a denial of certification on this basis would probably have been affirmed in similar fashion.

Next, the Court turned to the Cooperative’s claims that other conflicts of interest among members of the class precluded certification. These alleged conflicts included that (1) some class members still participated in the cooperative and others did not, (2) some class members were involved in a federal case where they claimed their interests were not being represented in the Fisher action, and (3) certain class members who sold tobacco during years where the Cooperative had positive revenues had claims that other class members lacked. The Court did not engage these questions in any detail, and it did not address the federal lawsuit at all. Instead, it emphasized that the “trial court may be in the best position to determine whether any conflicts among class members warrant denial of class certification,” and that the trial court had “considered defendant’s arguments and rejected them.” Again, the abuse of discretion standard played a central role in the Court’s analysis.

The Court then turned questions of commonality and manageability. Citing its 2014 decision in Beroth Oil Co. v. NC DOT, 367 N.C. 333 (2014), the Court noted that Beroth involved a “discrete fact-specific inquiry” for members of the class, as we discussed in our analysis of the case. Here, the Court noted, the “trial court identified many issues of law and fact that are common to the class.” And, as with its discussion of conflicts of interest, the Court implied that it may well have affirmed the opposite conclusion, noting that “the trial court exercised its broad discretion to allow, rather than deny, class certification.”

Finally, the Court affirmed the trial court’s manageability finding, noting the “extremely large number of similarly situated class members and the impracticality of requiring them to protect their rights through filing hundreds of thousands of individual lawsuits.” The Court did not address whether the individual class members would actually have pursued such claims, given the fact that many of them may not have farmed tobacco for decades or had a claim to any reserves, nor did it address the Cooperative’s argument that the size of the class and lengthy class period would make the class action unmanageable. Once again, it deferred to the trial court, noting that it could not conclude that the trial court abused its discretion by ruling that a class action was superior to individual litigation.

Although Fisher generally follows existing precedent in Crow and Beroth, it provides an important demonstration of this Supreme Court’s willingness to defer to trial courts on class certification. We’ll be watching to see if that holds in future cases as the Court changes, and we’ll also monitor whether North Carolina appellate courts will begin to take a more permissive approach towards interlocutory review of orders granting class certification more generally. As for Fisher itself, the case has been remanded to the trial court for further proceedings, although it’s unclear where that will be, given that Judge Jolly was handling the case as a Rule 2.1 judge and has since retired. We’ll continue to follow this case, which offers the potential to raise many interesting issues as it proceeds, especially in the areas of class notice and administration.

(John Wester of our firm served as amicus counsel to the NC Chamber in Fisher.)

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About Adam Doerr

Adam Doerr helps companies untangle complex litigation problems, with a special focus on class actions. He has handled class actions in state and federal court involving securities law, mergers and acquisitions, employment, and contract issues.